PRPP, A Confusing Acronym about Retirement Savings

Only, 1 in 3 have retirement savings, the median value of an RRSP in Canada for those over 55, is only $60,000. On top of this, a mere 1/3 can depend on a work pension after retirement.

What is the PRPP?

The Federal Government’s solution to this widening retirement gap is a new scheme called the Pooled Retirement Pension Plan or PRPP. It targets those individuals who are self-employed or without a company managed pension.

In essence it’s a great idea, a government run plan that protects Canadians in their retirement years. But in reality it’s avoiding the real problem, that is the current public pension plan, CPP and QPP (in Quebec), is under funded.

The Issues

The major issue with the new PRPP is that’s its voluntary. Already, there’s evidence that shows Canadians aren’t contributing to their RRSPs because you have to opt-in to be part of it. Another voluntary plan will also affect the most vulnerable, like those in low-income families who are least likely to prepare for retirement. As well this group after 65 is most at risk to live in poverty. Canadians are not taking care of their retirement on their own. Beefing up the already existing plan is the only way to protect Canadians in their old age.

Right now, the maximum CPP retirement benefit for someone who retires at age 65 is $960 a month, but the average CPP pension is actually just $512. Cost of living in Canada is going up and Canadian household debt as a share of personal disposable income stood at 150.8 per cent at the end of June.

Creating a new program is confusing and makes it harder for Canadians to make a decision that is right for their retirement. I have a few concerns. One, what are the qualifications for those contributing? Two, how much do they have to put in? Three, what if that person becomes unemployed? All of this creates a problem for those who will be handling that money for would-be-retirees. And the money is still subject to fluctuation in the stock market, so the fund can be affected by huge swing like the ones we have recently experienced.

Every sign points to less and less Canadians being able to afford to put money away for the long term. The chance of Canadians contributing to yet another confusing registered savings plan is unlikely. Canadians are still puzzled by how the TFSA works and it was launched more than three years ago.

The Solution

The Federal government needs to make retirement savings mandatory and force Canadians to put more into the public CPP to ensure there will be more money for seniors in retirement. Right now every working Canadian is eligible for CPP once they turn 65. It is that guarantee that will help seniors in their retirement and keep them out of poverty.

Hi Bobby, thanks for your comment. The report you’re referring too states the contribution rates are sufficient if the benefits remain the same. In my opinion the benefit needs to be increased beyond the maximum of $960 a year. I’m sure you agree that this is not enough money to pay rent, buy groceries and simply live. If we really want to ensure that less seniors are living in poverty we need to raise the monthly CPP benefit. The report you sent me touches on this “Therefore, to properly assess the appropriateness of the financing approach of the CPP in the long term, one must consider the whole retirement system in Canada rather than the CPP in isolation.” OSFI itself admits we must look at retirement holistically, if we do this we will see that most Canadians are ill prepared and the government’s idea to pour money into a new retirement scheme is not the answer.

Thanks for your response. I’m sure you meant $960/month (not year). I agree that we need to look at retirement holistically. And that is the point exactly that the CPP should not be the be-all end-all for a senior. Factoring in OAS (potentially GIS for lower-income), personal RRSP/TFSA and non-registered savings as well as private pensions, if someone cannot save responsibly for retirement during their lifetime, why should younger Canadians have to compensate for that by raising their CPP contribution rates?

The inability to save responsibly may apply to many; not all Canadians should be painted with the same brush. Without too much difficulty, imagine the many other scenarios which seniors fit into. Many have planned, but due to such mega-events as the recent world-wide fiscal & economic crash, they have suffered excruciating losses. That is just one example. As for the argument that the young shouldn’t be underwriting the necessary increase in premiums; where would you prefer to contribute?… Now, for insuring wellbeing & dignity for seniors, or later for some other cure?